Stressed assets in India’s banking system may not rise significantly in the medium term from the current Rs 11.5 trillion owing to the gradual recovery in credit quality of corporates, rating agency CRISIL said on Thursday.

CRISIL expects the creation of fresh non-performing assets (NPA) to decelerate in 2017-18, but the overall stock would continue to rise because slippages would still outpace recoveries.

Gross NPAs in the banking system are expected to be about 10.5 per cent of advances as of March 2018, up from 9.5 per cent as of March 2017, the agency said.

Faster resolution of stressed accounts through the Insolvency and Bankruptcy Code (IBC) and various structuring schemes, therefore, are critical to improving the asset quality of banks, it said.

About two-thirds of the overall stressed assets in the banking system have already been recognised by banks as NPAs as on March 31, 2017. Stressed assets include both gross NPAs and standard assets that are currently under pressure and could deteriorate into NPAs over the medium term.

The assets under pressure mostly comprise not-yet-recognised bad loans (recognised as NPAs in one bank, but not in others), restructured standard accounts, and stressed assets structured under schemes such as SDR, 5:25and S4A.

Infrastructure, power, engineering, and construction sectors contribute the bulk of stressed assets in the banking system.

With a majority of stressed assets now recognised as NPAs, the rest of the corporate loans portfolio of banks can be expected to perform better over the medium term.

However, the performance of MSME (micro, small and medium enterprises) and agriculture loans could see some deterioration mainly due to the impact of the goods and services tax (GST) and farm loan waivers, respectively.

But, these are unlikely to impact the bank balance sheets the way large corporate NPAs did, said Gurpreet Chhatwal, president, CRISIL Ratings.